Tariff concerns re-surface – OCBC

US Dollar (USD) rebounded after tariff news resurfaced. Trump said he would soon impose tariffs on foreign pharmaceuticals, semiconductors and metals (objective was to return production of these essential goods to US). Elsewhere, FT reported that Treasury secretary Scott Bessent favours universal tariffs on US imports, starting at 2.5% and it can move higher by the same amount each month. DXY was last seen at 107.90 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Bearish momentum on daily chart slowly fades

“Trump indicated he wants tariffs ‘much bigger’ than 2.5%. Not forgetting, 1 Feb is a potential day the 25% tariff on Canada, Mexico and 10% tariff on China goods come into effect. Tariff developments remain fluid and uncertain in terms of timing, magnitude and scope of products. As such, we should continue to see more 2-way trades dominate especially after the clean-out of some USD long positions.”

“Potentially thinner market liquidity this week due to CNY market closure may even exacerbate FX moves. Bearish momentum on daily chart shows tentative signs of fading while RSI rose from near oversold conditions. Rebound risk not ruled out. Resistance at 108.70 (21 DMA) and 109.50 levels. Support at 107.60/80 levels (50 DMA, 23.6% fibo retracement of Oct low to Jan high), 106.40 (38.2% fibo).”

“Later this week on Thursday morning (3am SGT), FOMC meeting comes into focus. This may be a non-event with expectations for hold after 100bp cumulative cut was seen over the last 3 meetings. There will not be any dot plot projection at this meeting, so focus is on Powell’s press conference. It is likely that he keeps it brief and reiterate policymaking being data dependent. For now, markets are projecting the next 25bp cut to come in June and about 2 cuts for the year. We are looking for 3 cuts.”